Ayatse2017 Article BusinessIncubationProcessAndFi

Ayatse et al.
Journal of Global Entrepreneurship Research (2017) 7:2

DOI 10.1186/s40497-016-0059-6
Journal of Global
Entrepreneurship Research
REVIEW Open Access
Business incubation process and firm

performance: an empirical review
Fidelis A. Ayatse1, Nguwasen Kwahar2 and Akuraun S. Iyortsuun3*
* Correspondence:
shadrach@fuwukari.edu.ng Abstract
3
Department of Business
Administration, Federal University, Industrialization is central if any economy is to be successful and the policy attempts at
Wukari, Taraba State, Nigeria industrialization involve creating systems and institutional arrangements that can help
Full list of author information is accelerate the process of industrialization. Business incubation is also a system and an
available at the end of the article
institutional arrangement to help nations industrialize by developing the SME sector.
This paper hopes to understand how the business incubation process influences firm
performance. The methodology adopted is a comprehensive and extensive review of
literature on the incubation phenomenon. The review found that firm performance is
greatly enhanced when a firm avail itself to an incubation program. Revenue growth,
employment or job creation, venture funding, networking and alliance building are the
performance indices most impacted by the business incubation process. The paper
recommends that prospective candidates for incubation should develop their market,
management and financial plans to increase their chance of being selected as tenants.
Also, firms are encouraged to access the value-addition services of incubation as this
greatly increases their chances of firm survival, revenue growth, employment and job
creation, financial resources and networking and alliance building. Furthermore, tenants
should not overstay their tenancy in an incubation program as doing so reduces their
chances of survival upon graduation.
Keywords: Business incubation, Business incubation process, Business incubator and
firm performance
Introduction
New venture creation and indeed established ventures operate with the intent of being
successful but failure is ever present due to the environment ventures operate in.
Evolutionary theorists argue “that the forces of selection that eliminate uncompetitive
firms are a necessary phenomena that contributes to the maintenance of healthy
populations of organizations” (Aldrich, 1999). However, the forces of selection alone
cannot be allowed to determine the number of organizations operating in an economy.
This has therefore, given rise to attempts at reducing the likelihood of venture failures
requiring not only the development of a favorable business environment and climate,
but also establishing strong institutions that will assist businesses reduce the likelihood
of failure. To help venture survival, governments have developed a unique institutional
arrangement called business incubation designed to help business survive and grow in
the contemporary competitive environment (European Commission, 2002).
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Ayatse et al. Journal of Global Entrepreneurship Research (2017) 7:2 Page 2 of 17
The success story of the business incubation process on firm performance has been
established. Incubators as cost-effective instrument of entrepreneurial promotion (EC,
2002) have impacted positively on firm survival, turnover, employment and job creation
(Weinberg et al. 1991; Mian & Suny, 1996; Headd, 2003; Al-Mubaraki & Busler, 2011;
Voisey et al. 2013; Sehitoglu & Ozdemir, 2013) with the success of the incubation
program dependent on its practices (Lewis et al. 2011). However, studies conducted by
Schwartz (2012) and Amezcua (2010) have reported that incubation has not contrib-
uted significantly to the survival, employment and sales growth of incubated firms
notwithstanding the time spent in the program. The conflict arising from these findings
form the basis for this empirical review.
A review of empirical works focusing on the impact of business incubation process
on firm performance is the focus of this paper. The goal is to establish the efficacy of
this question: how does the business incubation process influence firm performance?
What specific business performance indices are most influenced by the incubation
process? Indeed, is entrepreneurial venture creation and promotion facilitated by the
incubation framework? These are the questions that this review hopes to answer. This
will contribute to our understanding of the incubation phenomenon and its likely im-
pact on firm performance. The benefits of this review would benefit university and
research scholars, business incubator managers, policy makers and government and
indeed businesses among others on the importance of incubation in contributing
to firm performance. Generally, the results and recommendations would contribute
towards our understanding of the business incubation process and how it impacts
firm performance.
To achieve this objective, the paper is divided into three major parts. Part one focus
on the literature review covering the concepts of business incubation, business incuba-
tors, business incubation process and firm performance. Part two focuses on the
methodology of the study with part three focusing on the empirical review of the
related works based on the objectives of the study. Lastly, the paper provides the con-
clusion and recommendation.
Literature review
Literature review would attempt an understanding of the basic concepts underlying the
business incubation phenomenon. This section therefore, attempts to elucidate on the
concepts of business incubation, business incubators, business incubation process and
firm performance. The objective is to highlight and illuminate the concepts relevant to
our understanding of the incubation phenomenon. The review gives us the opportunity
to understand what the incubation phenomenon is, who or what an incubator is and
most importantly, what the incubation process is.
The Campbell et al. (1985), Smilor (1987) and Hackett and Dilts (2004a) models
of the incubation process provide a comprehensive perspective of what the incuba-
tion process is. The Campbell, Kendrick and Samuelson model is the first attempt
at modeling the incubation process with Smilor extending the model by incorporat-
ing a network dimension to the model. Hackett and Dilts model gains input from
the real options theory in explaining the incubation phenomenon. However, the
success of any incubation program is dependent on the practices adopted by such
an incubation program. Incubators size, age and local environment have an
influence on its success. However, incubator’s best practice is perhaps the most im-
portant determinant of its success. Such understanding and exposition therefore,
informs the decision to include same in this section.
Concept of business incubation and incubators

Business incubation is a unique institutional arrangement that is primarily
concerned with developing entrepreneurial culture in a community. However, the
onus remains on the entrepreneur to make the business survive, as they are prone
to be affected by what Levakova (2012) calls the ‘incubator syndrome’. To Brooks
(1988), the whole concept of incubation is attitudinal in that incubation fosters a
community attitude of encouraging and supporting emerging firms to be successful
with its success dependent on three fundamental factors: “an entrepreneurial and
learning environment, ready access to monitors and investors, visibility in the
marketplace” (European Commission, 2002). Levakova (2012).
The concept of business incubation is founded on the premise of increasing the
survival and growth of firms by developing mechanisms that will ensure the early
identification of those firms that have great potentials for success but are con-
strained by resources. The concept ensures that firms overcome what is called the
liability of newness and the liability of smallness thereby creating innovative firms
that are competitive, profitable and sustainable (Salvador & Rolfo, 2011). The incu-
bation phenomenon is therefore, considered an enabling technology “that capacitate
the functionality of critical and possibly strategic technologies” (Hackett & Dilts,
2004c). Generally, the incubation concept aims at achieving some fundamental
objectives which include to create new jobs and businesses, foster a climate of
entrepreneurship, commercialize technology, diversify, revitalize and accelerate
growth of industry and local economies, reduce company mortality rate, reduce
unemployment, increase university-incubation interaction and foster technology
development (Bizzotto, 2003; Mutambi et al. 2010; Al-Mubaraki & Busler, 2011).
The objective of business incubation is achieved through business incubators. Incuba-
tors are major actors in the entrepreneurial ecosystem by linking talent, technology,
capital and know-how (Todorovic & Moenter, 2010; Bejarano, 2012; Levakova, 2012;
Al-Mubaraki et al. 2013). However, definitional challenges exist on what constitute
business incubators or business incubation (Bergek & Norrman, 2008). Sources of this
definitional challenge arise from the confusion of virtual incubators with traditional in-
cubators that provide in-house tenancy, the inability to properly define the incubation
process or define it but fail to identify with whom the incubation process occurs and
the use of the terms such as science parks, technology centers etc. interchangeably
(Bergek & Norrman, 2008; Hackett and Dilts, 2004a).
The general idea of what research scholars see as business incubators is that they are in-
stitutions concerned with speeding up the growth, financial and operational stability of
entrepreneurial start-ups by offering them targeted services and support (EC, 2002;
Bergek & Norrman, 2008; Mendoza, 2009; Levakova, 2012; Moreira et al. 2012; Masutha
& Rogerson, 2014) with a strong emphasis on knowledge agglomeration, resource sharing,
innovativeness and competitiveness by creating an environment which help start-ups deal
with the challenges of entrepreneurial pursuit (Phan et al. 2005; Akcomak, 2009).
Bringing a network dimension to the concept, Weinberg (1991) views incubators

as inter-organizational or social partnership organizations that are concerned with
addressing “socially-relevant” purposes by harnessing the strength from diverse or-
ganizations. Mian (1996) and Bollingtoft and Ulhoi (2005) championed the concept
of a network incubator “based on territorial synergy, physical proximity, relational
symbiosis and economies of scale” with the overall aim of leveraging entrepreneur-
ial initiative and know-how in creating and operating successful companies. In
their contribution, Bergek and Norrman (2008) observe that research scholars dis-
agree on whether a business incubator is an organization or a general term likened
to an entrepreneurial support environment. To scholars such as Brooks (1988),
Weinberg et al., (1991), Lalkaka (2001), and Phan et al. (2005), incubators are reg-
istered organizations that provide affordable office space, offering targeted support
services with the sole purpose of nurturing small fledgling firms into healthy
businesses.
Concept of business incubation process

Business incubation program, as a tool for promoting innovation and economic
development (Bergek & Norrman, 2008; Al-Mubaraki & Busler, 2011), is designed to be
capable of adding value to incubated companies with the intent of increasing the
survival rates of such incubated companies (Bizzotto, 2003; Moreira et al. 2012). The
value adding activities are generally regarded as the business incubation process with
several models developed to explain the phenomenon. Bergek and Norrman (2008)
cautions on the limited scope to which most of the incubation models are conceived as
focusing primarily on results neglecting the interrelationship of the value added activ-
ities to other incubator activities.
Earlier researchers of the incubation phenomenon such as Campbell et al. (1985)
are acknowledged as the first to develop a business incubation process model. The
Campbell, Kendrick and Samuelson model has four basic ‘services’ or value
addition activities, foci areas where incubators contribute to firm performance. The
value addition activities starts with diagnosis of needs, which is applied to pro-
spective incubatee’s new business proposals. When the diagnosis is successful, the
successful companies selected for incubation (called incubator tenants) are moni-
tored. The incubator tenants also enjoy additional value addition activities by way
of capital investment and access to expert networks with the prospect of venture
capital. The tenants then graduate from the incubation program as successful
growth ventures or businesses. Hackett and Dilts (2004b), Moreira et al. (2012) in
critiquing the model observes that the model is developed with the fundamental
assumption that all incubated companies will survive. The Campbell model is fur-
ther limited to private incubators only with it not considering the capabilities of
the potential entrepreneurs, environmental barriers and a lack of a selection criter-
ion in the selection of potential incubatees.
Smilor (1987) extended the Campbell model with an emphasis on the external
environment (incubator affiliation and support systems) to the neglect of the internal
processes occurring inside the incubator. He conceptualizes the incubator as a system
that confers ‘structure’ and ‘credibility’ on incubatees while controlling a set of assistive
resources. The incubator operates a network of support ‘services’ or value-addition ac-

tivities with affiliation to the private sector, universities, government and non-profit.
The incubator has internal support ‘services’ or value-addition activities in four basic
ways: secretarial, administrative, business expertise and facilities. Both the external and
internal support systems are designed to achieve the following objectives: economic
development, technology diversification, job creation, profits, viable companies and
successful products.
A model of business incubation process as developed by Hackett and Dilts
(2004a) is based on the concept of ‘black-box’. The process is primarily concerned
with what happens inside the incubator (its internal dynamism) with a link to its
environment. The Hackett and Dilts model conceives business incubation as the
selection of incubatees from pool munificence of prospective candidates who ‘enter’
into the black box of incubation. The incubatees undergo value addition activities
in three ways: selection performance (which is also an aspect of selecting prospect-
ive incubatees), monitoring and business assistance intensity and resource munifi-
cence. The incubatees are then outputted from the ‘black-box’ of incubation as
graduated companies having an outcome that is either success or failure. The
Hackett and Dilts model has control variables of population size, state of the econ-
omy, incubator size, and incubator level of development. In summary, their busi-
ness incubation process model comprises three fundamental activities: selecting
weak but promising firms to be admitted to the incubation program, monitoring
and assisting those that would be successful and lastly providing the requisite re-
sources to help them develop and graduate from the incubation program as finan-
cially viable and freestanding firms.
To them selection performance refers to the degree to which the incubator behaves
like an ‘ideal type’ venture capitalist when selecting emerging organizations for admis-
sion to the incubator. The selection from the pool munificence of candidate companies
is done taking into consideration four characteristics: managerial characteristics, market
characteristics, product characteristics and financial characteristics. It means candidate
companies need to be evaluated in the light of these characteristics. Monitoring and
business assistance intensity is also another value-addition activity or service offered by
an incubator. As defined by Hackett and Dilts, monitoring and business assistance in-
tensity is the degree to which the incubator observes and helps incubatees with the de-
velopment of their ventures including helping them to learn from low-cost failures and
containing the cost of potential failure. This is achieved through time intensity of assist-
ance provided, comprehensiveness of the assistance provided and the quality of assist-
ance provided. The last value addition services of the Hackett and Dilts model is what
they call resource munificence which they define as the relative abundance of incubator
resources, measured by the following: resource availability, resource equality and re-
source utilization.
Hackett and Dilts define the outcome of the incubation process as five mutually ex-
clusive outcome states “measured in terms of incubatee growth and financial perform-
ance at the time of incubatee exit.” The outcome states are: the incubatee is surviving
and growing profitably, the incubatee is surviving and growing and is on a path toward
profitability, the incubatee is surviving but is not growing and is not profitable or is
only marginally profitable, incubatee operations were terminated while still in the
incubator but losses were minimized and incubatee operations were terminated while
still in the incubator and the losses were large.
Concept of firm performance

The concept of firm performance and its measurement has bases in the fields of eco-
nomics, management and accounting (Tangen, 2004). The simple objective of perform-
ance measurement is to ascertain how well an organization is functioning and is being
managed given a set of criteria and standards. A broader view of the concept ensures
that the interest of the organization’s publics is considered with effectiveness and
efficiency being the two fundamental dimensions of performance (Moullin, 2003;
Khan et al. 2011).
Neely, Gregory and Platts (2005) define a performance measurement system as the
process of quantifying the effectiveness and efficiency of an organization. To Khan et
al. (2011), performance measurement is the process of assigning “value to objects or
events in such a way as to represent quantities, qualities or categories of an attribute.”
The quantification of the performance of organizations has been based traditionally on
financial criteria with dimensions such as annual sales, annual profit, number of clients,
and growth among others. However, supporters of the multiple-objective school argue
that performance measurements should incorporate the different stakeholders of an
organization – a systemic perspective (Malina & Selto, 2004; Wu, 2009). Kennerley and
Neely (2003) therefore, submit “that financial performance measures are historical in
nature, provide little indication of future performance, encourage short termism, are in-
ternal rather than externally focused with little regard for competitors and customers.”
Contemporary performance measurement systems have therefore, being expanded to
include both financial and non-financial criteria (Laitinen & Chong, 2006) making it
multidimensional in nature.
Performance measurement in incubation literature is also multidimensional. There is
no acceptable performance measure in incubation literature (Phan et al. 2005) leading
to incubator researchers using different performance measures. Furthermore, the defin-
itional challenge of what incubators are has also contributed to compounding the prob-
lem of identifying a single acceptable measure of performance in incubation literature.
From review of business incubation literature, the following performance indices are
used: revenues, finance, venture capital funds, graduation from incubation program,
firm survival, networking activity, innovative firms, organizational or firm growth, job
creation, sales growth, profitability, patents registered, number of patents application,
alliance, technology transfer, employment growth, technology growth or development,
research and development productivity, ability to share knowledge and technology and
high-tech employment.
Summary of literature review

Business incubation is a policy tool that facilitates entrepreneurial development by cre-
atively initiating and implementing programs that focus on providing targeted re-
sources and services. These services, which are designed to add value to
entrepreneurial ventures, are structured to provide targeted and specific benefits for
the incubated businesses. The Campbell, Kendrick and Samuelson, Smilor and Hackett
and Dilts models of value addition activities by incubators focus on providing targeted
services to firms that are selected from a pool of prospective firms. Selection is an im-
portant element of the incubation process, which is an activity distinct to incubators
and this activity is present in the three models discussed in this review. The Campbell,
Kendrick and Samuelson and Hackett and Dilts model focus on internal network of
support provided for the selected firms for incubation while the Smilor model focus
more on the external network of support from government, universities, non-profit and
the private sector. In all of the models, the business incubation support infrastructure
is in the form of resources, expert networks, business, secretarial, and administrative
support and capital investment.
Earlier research studies on the incubation phenomenon are generally classified as in-
cubator development studies, incubation configuration studies, incubatee development
studies, incubator-incubation impact studies and studies that theorize about
incubators-incubation (Hackett & Dilts, 2004a). However, the focus of this review ad-
dresses the following questions: does the value addition activities by business incuba-
tors have any impact on the firm performance? In other words, does business
incubation process have any influence on the performance of the incubated or gradu-
ated firms? In what specific ways does the performance of the incubatees or graduated
firms impacted? What performance measure is most impacted by the business incuba-
tion process? These are the questions this review hopes to achieve.
Study methodology
The methodology adopted for this review was based primarily on review of articles
related to the business incubation process and firm performance. The choice of the
articles reviewed and included in this paper especially under the empirical review
section was dependent on whether the article is empirical in nature. Non-empirical
articles were used for the literature review section while empirical articles were
used for the empirical review section. The inclusion of only empirical articles in
the empirical review section is to highlight the major findings reported by the
studies, which will help in achieving the study’s objective of assessing the influence
of the business incubation process on firm performance. Furthermore, the time
frame covered the period of 1999 to 2012. Only one article was selected in the
period before 2000. Nine articles were selected within the period 2000 to 2009 and
seven covering 2010 to 2012. Therefore, 41% of the articles selected covered 2010
– 2012 and 53% covered 2000 – 2009. The selection of the papers was therefore,
reasonably spread over the period under study.
The selected articles proxied business incubation process as selection of prospective
incubatees, monitoring of the firms selected for incubation, provision of business assist-
ance, professional management services and capital/finance to the tenants, and access
to incubator internal and external expert networks while firm performance is proxied
by firm growth, firm survival/failure, employment/job creation, research and develop-
ment productivity, research and development expenditure, revenue/sales growth, pat-
ents, venture funding and networking/alliance capability. The choice of the inclusion of
the empirical studies is therefore, based on the business incubation process and firm
performance indices as defined above.
An Internet search of the keywords business incubation, business incubator, technol-

ogy business incubator, university incubator, network incubator, virtual incubator and
firm or new venture performance provided the articles used for this review. The online
database used for the Internet search included Google Scholar, EBSCO HOST, Science
Direct, Springer Link, Wiley, JSTOR, Emerald, GALE, Pro-quest e-Library and ICAST
Gateway. These databases produced journal articles, conference papers, working papers
and academic theses, with the selection of an article dependent on the appropriateness
of such a article to the objectives of this review. In other words, an article inclusion is
dependent on whether it fits the overall objective of the review.
The search returned thirty-one (31) studies on the business incubation process and
firm performance with only about twenty-two (22) including some aspects of the vari-
ables defined in this study that can satisfy the stated objectives. Nine (9) out of the
thirty-one (31) were rejected due to the fact that their variable definition and objectives
was in contrast to the objectives and variable definition of this study. Out of the
twenty-two (22), five (5) had similar research design with this study but could not be
accessed and hence excluded. Its exclusion has not affected the research conclusions.
Therefore, a total of fourteen (14) articles were rejected with only seventeen (17) stud-
ies used. Out of the seventeen studies, thirteen (13) are journal articles, two (2) each
for thesis and discussion papers. The seventeen (17) studies were included because they
had similar research design and variable definition with this study and were considered
relevant in achieving the stated objectives of this review.
Empirical review of related works

This section summarizes empirical works carried out on the incubation phenomenon
with an emphasis on empirical studies that focus on the business incubation process.
About seventeen studies have been listed as assessing the impact of the business incu-
bation process on firm performance. The stakeholder’s theory explains that different
stakeholders desire to achieve their objectives by identifying with a particular
organization and given the numerous stakeholders that a firm deals with, such a firm is
expected to at least strive to satisfy the aspirations of its stakeholders. Since the major-
ity of incubators are publicly funded, the stakeholder’s theory is relevant in justifying
the diverse incubation outcomes or the firm performance measurement indices
employed in incubation impact studies. A tabular presentation best captures the major
highlights of the empirical studies reviewed and included in this paper. The Table 1 in
Appendix below therefore, summarizes the studies reviewed. It covers the author of the
study and the medium through which the research was published, the research ques-
tion or objectives, methodology employed and variable definition, sample size definition
and finally the major findings.
Summary of empirical review

The empirical review focuses on entrepreneurial support mechanisms that are called
business incubators. The common denominator for the reviewed works indicates a sig-
nificant impact of the incubation phenomenon on business performance with the im-
pact showing either a positive or negative relationship. Firm survival/failure, sales/
revenue growth, employment/job creation, venture funding/capital and networking/
alliance in that order are the most used business performance measures used in
business incubation research. Other measures such as technology transfer, firm pat-
ents and R & D productivity are less used as measures of firm performance. It is
also worthy of note to highlight that the incubation studies attempt to prove that
firms participating in incubation programs outperform those that do not assess
incubation services with models developed to determine the impact on firm
performance with incubation process dimensions defined as selection practices of
incubators, monitoring and provision of business assistance, professional services
and resources/capital to tenants and exposing tenants to the incubator’s internal
and external expert network resources.
The findings of this review shows that out of the seventeen (17) studies reviewed,
only three (3) disputed that business incubation process does not contribute posi-
tively to improving tenants or graduated firm performance. An overwhelmingly
fourteen (14) studies support the proposition lending credence to the argument
that incubation creates an entrepreneurial spirit that supports businesses and pro-
mote new venture creation, impacting positively on economic growth and develop-
ment. Specifically, findings from the review indicate that knowledge flows from
external networks helps tenants to avoid failure and increases their access to net-
working resources, graduation from the incubation program and assessing funding.
Also, the review shows that participating in an incubation program helps firm sur-
vival even after graduating from an incubation program with other benefits such as
job creation, profitability and sales growth. Indeed, the evidence indicates strongly
that participants in an incubation program outperform nonparticipants in terms of
firm survival and sales growth.
In terms of business assistance and advisory, the evidence from the review shows that
participants in an incubation program derive immense benefits in the areas of revenue
and firm growth, patents application, obtaining finance or capital and establishing alli-
ances. It is also important to point out that the time spent in an incubation program
and indeed the age of the incubator also contributes to firm survival. A major theme in
incubation literature is the screening of prospective firms and findings from the
reviewed empirical studies conclusively show that incubators focus on three primary
factors in carrying out screening activities: market, management team and financial fac-
tors in that order. However, focusing on only one of the factor is counterproductive im-
plying that a business incubator needs to evaluate prospective incubatees using the
factors together. In that way, the probability of survival is higher compared to when the
factors are considered separately.
Contrary findings on the benefit of incubation indicate that firm survival is not
improved neither is technology transfer, employment and venturing achieved
when firms avail themselves to an incubation program. This evidence is not
strong enough to vitiate the argument that business incubation encourages entre-
preneurial spirit and significantly contribute to enhancing firm performance both
within and without the incubation program. Therefore, following from the empir-
ical review, it can be safely and convincingly submitted that business incubation
process indeed contributes to improving the performance of firms right from the
time they are domiciled within an incubator to when they successfully graduate
from incubation as financially independent and viable entities. This is the
contribution that this review adds to the literature on business incubation process
and firm performance.
Conclusion and recommendation

In contemporary society today, business incubation is regarded as an important tool
that has the capacity to support businesses to survive and grow. This paper has suffi-
ciently addressed the fundamental questions raised in this review. Evidence shows that
the incubation process improves firm performance. Arguing further, the review shows
that the most impacted performance measures in incubation research in the order of
importance is firm survival, revenue growth, employment or job creation, venture
funding and networking and alliance building. Clearly, this review supports the efficacy
of incubators as framework to enhance tenants or graduated firm performance,
supporting the view that incubation is a tool that supports entrepreneurial promotion
and new venture creation. Indeed, the evidence supports incubation as powerful instru-
ments that must be encouraged and supported as an important component of the
entrepreneurial ecosystem, as a framework for business support and the proliferation of
new ventures.
To expand and promote incubation as a confirmed promoter of entrepreneurial pro-
motion and SME proliferation, all tiers of government must be encouraged to promote
the establishment of incubators and build their capacity to support emerging and new
ventures. This recommendation derives from the fact that as confirmed promoters of
entrepreneurship, the more capacity is built for incubators and the more support from
government, the more equipped they will be able to contribute to entrepreneurship
promotion. Indeed, emerging businesses with new ideas would greatly benefit if they
participate in the incubation program as participation increases significantly their
chances of survival, revenue growth and job creation.
Furthermore, this review encourages new and emerging businesses to avail them-
selves the business assistance, monitoring, expert networks, resource munificence and
advisory services provided by incubators as these value addition activities have the po-
tential of improving their ability to source for finance, improve patents application and
the building of alliance. The study also recommends that incubator’s capacity to lever-
age knowledge flows from its expert external network should be deepened so that incu-
batees and prospective incubatees should benefit to increase their chances of survival.
Also, the study recommends that tenants should not overstay their tenancy in an incu-
bation program as doing so reduces their chances of survival upon graduation. Finally,
prospective incubatees to increase their chances of acceptance in an incubation pro-
gram should creatively focus on improving their market, management and financial
proposals since incubators focus on these factors in the selection of businesses to be
incubated.
Further research should be conducted to illuminate the blurry aspects reported by few
scholars concerning firm participation in an incubation program which they claim does not
contribute to firm survival. More comprehensive research studies in this dimension would
be helpful. Empirical research would definitely throw more light in this direction. Further-
more, more studies in the area of technology incubators or university incubators not having
a significant impact on the transfer of technology would also benefit incubation research.
Appendix
Table 1 A summary of the impact of the business incubation process on firm performance
Author/Journal Research question Methodology Sample Findings
or objective and variables
definition
Rothaermel How does Ordinary least Firm-level data on They found that
& Thursby (2004) knowledge flows squares, logistic 79 incubated knowledge flows proxies
Research Policy from universities and multinomial technology firms are not significant with
to incubator firms? regressions are with the Georgia respect to revenues
How do these employed. Tech’s (GT) Advanced but significant with
knowledge flows Performance Technology Development respect to funds raised,
affect the performance measures defined Center covering a obtaining venture capital
of new technology are revenue, period of six years funding, probability of
ventures? venture capital from 1998 – 2003. failure and probability
funding, total funds of graduation. However,
raised, firm failure, they also reported that
graduation and the absorptive capacity
remaining in the of firms also have a
incubator. The significant impact on
independent variables the success of knowledge
are licensing defined flows, an important
as backward citations component in the firm’s
to university research, competitive advantage.
academic journal,
GT research and
non-GT research
with firm size, industry
effects, time in
incubator, non-GT
university link and
estimation procedures
as control variables.
Soetanto & How does business The study uses descriptive Networks of 62 firms Incubatees focus on
Jack (2013) incubators statistics. Framework in Daresbury Science intangible resources in
Journal of accommodate the to understand and Innovation Campus the process of
Technology networking needs incubator networks in UK. Data is collected developing networks
Transfer of the firms within classified in two from 2008 to 2009 from with highly innovative
the incubators and dimensions: internal survey of founders or firms more active in the
how does these and external networks managers. Half the development of networks
networking activities and resource types sample represent highly than less or moderately
differ among highly defined as tangible innovative firms that innovative firms. For the
innovative and and intangible are technology-based highly innovative firms,
medium to low resources which with average of four the networks have
innovative firms? form the independent employees. significant impact on
variables and networking firm performance while
activity of highly the low or moderately
innovative and less innovative firms,
innovative firms as networking ability does
the dependent variable. not have a significant
impact on their
performance.
Aerts et al. How does the initial The authors regress three A web survey was Incubators carry out
(2007) screening practices screening factors: market, administered to 654 unbalanced screening
Technovation of incubators affect management team and European incubators with tenant market
the survival rate of financial factors on identified through factors being the most
incubator tenants? average failure rates. Community Research important criterion,
The screening factors and Development followed by
for incubators define the Information Service management team
independent variables Database and Internet and financial factors.
and failure rate defines searches with 100 European business
the response variable. responses (of which incubators focus on
three explicitly stated tenant’s market and
they do not screen management factors
their tenants) while American
counterparts focus
more on financial factors.
They concluded that for
screening practices to
have any impact on firm
performance, a balanced
set of factors should be
used in incubatee
screening, with tenant
survival rate having a
(Continued)
positive relationship
with a more balanced
screening practice. Also
incubators that support
entrepreneurial and
small business
development will
produce higher
survival rates for its
tenants.
Schwartz (2008) What is the effect of Survival analysis is used Data on five German He found a statistically
Institute for incubator age and to investigate how incubators collected negative impact of
Economic incubation period on incubator age and from June 2006 – incubator age at the
Research the long-term survival incubation period affects December 2007 through time the firms moved
of graduated firm? the probability that a face-to-face interviews. into the incubator and
market exit occurs within Incubators have similar the probability of
six years of graduation. ages and minimum post-graduation firm
Three dummy variables in operating time. Data survival. Also, time span
addition to age and time on 149 graduated firms of tenants above the
in incubation were from five German average shows a
defined as the business incubators statistically negative
independent variables. located in the five relationship on
cities of Dresden post-graduation survival.
The hazard function
showed that one-third
of the 36 failures
occurred within year of
graduation and the
probability of failure
increased again after the
fourth year. Furthermore,
for firms in high-tech
sectors, failure rate is
lower compared to firms
in low-tech sectors.
Hartmann and Is the growth rate The focus was on Data on the number of There is no relationship
Masten (2000) of small firm technology assistance small firm manufacturers between the growth
Journal of manufacturers to small manufacturers, and questionnaire rate of small firm
Technology explained by the an important element responses from 10 US manufacturers
Transfer economic in business incubation. states from 1980 to 1990 and traditional economic
environment? The data analytical tool was used. variables at the state
is Stepwise regression level. They however,
concluded that states
that focus on providing
technical assistance had
small firm manufacturers
having a significantly
higher growth rates.
Lindelof & How does the Descriptive statistics and Sample was 223 firms On park firms have a
Lofsten (2004) performance of regression analysis using in Sweden of which higher rate of job
Journal of new technology- paired samples 143 were located in creation and sales or
Technology based firms located science park (10 science revenue growth. No
Transfer in science parks parks) and 139 were not. effect on profitability.
compare to those Initial sample of 265 on Firms within science
located elsewhere? park and 300 off-park parks are more likely to
Does higher firms. Data collected have links with local
education-industry for a three-year period universities.
links encourage (1996 to 1998)
innovation and new
product launches?
Cumming & Does advisory services Tobit and logistic A sample of 228 firms They found a positively
Fisher (2012) help foster regressions, controlled in Ontario, Canada, of significant relationship
Research Policy entrepreneurial through the use of an which 101 used business between business
outcomes for instrumental variable. advisory services. The advisory services with
businesses when Entrepreneurial data span the period firms’ sales growth,
they are targeted outcomes were of fourth quarter of patents, finance and
towards the subset measured on the 2006 to second alliances. They also
of SMEs that are growth dimensions of sales quarter of 2009 found that firms with
and innovation oriented? growth, patents, finance patents are more likely
and alliances while to receive business
advisory services forms advisory services than
the independent firms without patents.
variable for the study.
(Continued)
Scillitoe (2010) How does direct Hierarchical multiple Data was collected They found that
Technovation counseling and regression is performed between 2003 – 2004 interactions with
networking using direct frequency of through web-based incubator management
interactions provided interactions between surveys from 42 new are important for
through business incubator and firm technology-based firms understanding buyer
incubators enable (counseling) and that had contacts with preferences but do not
new technology-based number of contacts an incubator: 14 firms enable the speed of
ventures? (networking) with and 6 incubators in technological learning
business incubation Finland and 28 firms and that business
process dimension and 11 incubators in assistance in the form of
defined as business the US venture learning about
and technical assistance. buyer preferences is best
enabled through
counseling while not
enabled through
networking interactions.
For technical assistance
in the form of venture
learning, technological
know-how skills is best
enabled through
networking while not
enabled through direct
counseling.
Lerner (2000) What is the impact Venture capital activity, Sample of 1,435 firms. SBIR-funded firms grow
Journal of of the Small Business measure of SBIR award 541 received phase I significantly faster than
Private Innovation Research status and interaction funding, 294 received matched non-SBIR-
Equity (SBIR) program on between venture activity phase II funding, and funded firms in terms of
participating firms? and SBIR award status is 600 firms, with some employment and
the independent variable overlaps, were listed in revenues, if they are
while employment and the Corporate located in areas with
sales is the dependent Technology Directorate substantial venture capital
variable. OLS regressions activity. Effect more
is used. pronounced in high-
technology industries. In
other words, Lerner found
that the interaction
between venture activity
and SBIR indicator is
consistently significant
with employment and
sales growth as SBIR alone
has little impact.
Hackett & What are the Factor analysis with 50 business incubators The authors propose
Dilts (2008) elements of the validity and reliability is from an initial sample of eight multidimensional
Journal of business incubation used. Business incubation 79. Data was collected scales (29 items) to use
Technology process and how process is measured as over 5 years (1999 – in incubator evaluation.
Transfer is it measured? selection performance 2003) using proprietary The variables were SP,
(SP), monitoring and software. MBAI and RM as
business assistance predictors with the
intensity (MBAI) and outcome states as: the
resource munificence incubatee is surviving
(RM) are independent and growing profitably,
variables while incubator incubatee is surviving
outcomes are five and growing and on a
independent exclusive path toward profitability,
outcome states. incubatee is surviving
but not growing and
not profitable or only
marginally profitable,
incubatee operations
were terminated while
still in the incubator
but losses minimized and
the incubatee operations
were terminated while
still in the incubator and
the losses were large.
Bejarano, T. Does incubatees that Descriptive statistics, 86 incubators were No statistically significant
(2012) rate high on Hackett correlation analysis and selected from about predictive ability of the
Thesis & Dilts scale have stepwise regression 190 business incubators Hackett & Dilts scales
stronger outcome that were identified to when used to predict
states compared to be operational in Brazil incubatee outcomes. He
incubatees that rate within the period of concluded that in
understanding the
(Continued)
low on the same May, 2011 to impact of the incubation
scale? December 2011 process on firm
performance, using the
Hackett and Dilts scale
alone would not help in
understanding whether
an incubated firm that
rates highly on the scale
performs better than
one that rates
low on the same scale.
Khalid, Gilbert Does selection Statistical procedure Survey questionnaire Selection performance,
& Huq (2012) performance, involved two main was used to gather the monitoring and business
Asian Journal of monitoring and processes, exploratory necessary data from assistance intensity
Social Sciences business assistance factor analysis and 118 incubatees from and professional
and Humanities intensity, resource multinomial logistic a population of 180 management were
munificence and regression. Variable ICT-based companies significant predictors of
professional defined are: selection in ICT incubators in business incubation
management services performance, monitoring Malaysia from the outcome of ‘our
significant predictors and business assistance period February 2010 company is making
of the business intensity, resource to May 2010. profit’ and ‘our company
incubation munificence and is highly profitable’
performance? professional management while resource
as independent variables munificence failed to
while incubation outcome show any relationship
states defined as to any of the outcome
dependent variables. categories.
Amezcua (2010) Does the performance An accelerated failure Three datasets is used. Compared to non-
Thesis of incubated firms time unshared-frailty A panel data set incubated firms,
outperform the regression model using consisting of 944 incubated firms fail
performance of non- a log-logistic distribution business incubators 10% sooner. Incubation
incubated firms? Are for survival analysis with in the US between 1990 stems a firm’s economic
certain attributes of double differences model and 2008 and two panel loss in terms of
business incubators to address selection bias. dataset of firm-level data employment and sales
more associated with Survival, employment and from the National but does not contribute
better tenant sales growth were the Establishment Time- to economic growth.
performance? dependent variables. Series Database Amezcua found a
statistically marginal
difference between
incubated and non-
incubated firms in terms
of performance. He
observed that an incubator
and entrepreneur’s traits
when related with how
incubated firms perform,
shows evidence of a
measurable impact of the
duo of incubator and
entrepreneur trait on the
performance of the
incubated ventures.
Yang et al. Does on-park firms exhibit Paired sample and two Panel data for new They found that NTBFs
(2009) better innovative stage regressions to technology-based firms domiciled at an
Research Policy performance in terms control for section effects. located on and off the incubation facility
of R & D and productivity Dependent variable is Hsinchu Science Industrial invest more efficiently
than off-park firms? Does modeled using the Cobb- Park in Taiwan. A total of and have the added
on-park firms more Douglas Production 247 firms, 57 of them advantage of networking
efficient in R & D efforts Function against the log located within the park. advantages or clustering
than their off-park transformation of capital, 1998 – 2003 effect. Their major
counterparts? labor, intermediate inputs findings also reveal that
and research and devel the elasticity of R & D
opment expenses as with respect to outputs
independent variables. of NTBFs located within
HSIP is significantly
higher than that of other
firms not located at the
HSIP. NTBF within
incubation facilities
exhibit better
performance in terms
of R & D productivity.
Schwartz (2012) Does an incubated Comparison of survival 371 incubated firms They found that out of
firm has a greater rates as well as the from 8 incubators and the graduated firms
(Continued)
Journal of chance of success evolution of the risk of a control group of 371 from five incubator
Technology in the long run as market exits of incubator non-incubated start-ups programs, non-showed
Transfer a result of availing firms (after graduation) from Germany. a statistically significant
itself to an incubation and non-incubated firms. survival rate when
program when compared compared to non-
to a non-incubated firm? incubated firms. For the
3 incubators, the
incubated firms showed
a statistically significant
lower survival rates
when compared to
non-incubated firms.
They therefore,
concluded that
incubation is doubtful
as a policy of improving
firm performance in the
long run.
Phillips (2002) How effective are Employed descriptive Surveyed 44 business Technology business
Technology technology business methodology to assess incubators (34 from incubators have not
in Society incubators as technology how technology business technology business been found to have a
transfer mechanisms? incubators are effective incubators and 10 from significant effect on
in technology transfer. university business technology transfer.
incubators). Survey Despite being formed
was based on the US as a medium of
National Business technology transfer, they
Incubator Association do not have a high
Survey of 2001. incidence for technology
transfer. Furthermore, they
found that tenants of
technology incubators are
larger (in terms of revenue
and employment) with
more costs than
conventional incubators.
Wallsten (2001) What is the impact of Three stage regressions 367 SBIR-funded firms, 90 Wallsten found that
Stanford the US Small Business to distinguish between rejected SBIR-applicant university research and
Institute for Innovation Research selection and treatment firms, 22 eligible firms development positively
Economic (SBIR) program and effects. Independent that did not apply for the correlates with high-tech
Policy Research science parks on variables are university SBIR funding spanning employment but is not a
participating firms? research and 1983 – 1997. significant correlate with
development spending either venture capital or
and general economic number of small firms.
conditions proxied by Also no statistically
per capita income and significant impact on
number of high-tech participating firms
firms while dependent performance from
variables are proxied by neither SBIR-funded
high-tech employment, nor research parks.
number of small firms Insignificant correlation
and venture capital. between science parks
and high-tech
employment.
Acknowledgment
We wish to acknowledge the contribution made by Mr. Msoo Mee, Executive Director of the Benue Business
Incubation Program, Benue State, Nigeria for his inputs during the development of this manuscript. His contribution is
highly relevant given his practical experience with the incubation program and process in Nigeria. I also wish to
acknowledge Dr. S. Kpelai of the College of Management Science, University of Agriculture for his insight during the
development of this manuscript. Their contribution is highly appreciated.
Funding
This study is funded by the Federal University, Wukari, Nigeria.
Authors’ contribution
FAA modified the topic and structure of the work while NK read through the work with some modifications and
inputs to the content of the work. IAS conceived the idea of the study and carried out the research and write-up of
the work. All authors read and approved the final manuscript for submission to the Journal of Global Entrepreneurship
Research.
Competing interest
The authors declare that they have no competing interests.
Author details
1
College of Management Sciences, University of Agriculture, Makurdi, Benue State, Nigeria. 2Department of Business
Administration, College of Management Sciences, University of Agriculture, Makurdi, Benue State, Nigeria. 3Department
of Business Administration, Federal University, Wukari, Taraba State, Nigeria.
Received: 8 June 2016 Accepted: 16 December 2016
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Journal of Global Entrepreneurship Research (2017) 7:2

REVIEW Open Access

Business incubation process and firm

Concept of business incubation and incubators

Bringing a network dimension to the concept, Weinberg (1991) views incubators

Concept of business incubation process

resources. The incubator operates a network of support ‘services’ or value-addition ac-

Concept of firm performance

Summary of literature review

An Internet search of the keywords business incubation, business incubator, technol-

Empirical review of related works

Summary of empirical review

Conclusion and recommendation

Received: 8 June 2016 Accepted: 16 December 2016

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